Once again, private capitalism’s contradictions, flaws and weaknesses threaten its own existence. Two major global collapses — first in the 1930s and more recently, since 2008 — plus periodic downturns every few years have underscored the instability that haunts the system. At the same time, deepening inequality has turned ever-larger populations into capitalism’s critics. Talk of reform and revolution has crowded onto political agendas. The capitalism versus socialism debate has returned everywhere. However, it is a changed debate transformed by lessons drawn from the Soviet Union and other similar experiences and experiments. The debate now displays three key alternative systems, not two: private capitalism, state capitalism and socialism. And that changes everything.

During the later nineteenth and twentieth centuries, we mostly believed ourselves to be caught up in a struggle between capitalism and socialism — as the two alternative economic systems differentiated by how the individual related to the state. Private versus public enterprises, free markets versus central planning: these were the epochal individual versus state oppositions that, especially in economics, took the form of capitalism versus socialism. But we know now that we should not equate the private-versus-public debate with a real consideration of capitalism versus socialism. Capitalism, we have learned, displays both private and state forms, and socialism differs from both of them. Capitalism, as we discuss further below, is a production system structured by its relationship of employer to employee as different persons or groups, regardless of whether employers are public or private. In contrast, socialism’s very different structure has employer and employee being the same person.

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Reexamining past economic systems that coexisted with state apparatuses shows that they included both private and public enterprises. In many examples of slave economic systems, there were private masters alongside public masters. That is, private individuals or groups of citizens owned slaves, but so did local, regional or national state bodies and agencies. Likewise, in many examples of feudalism, we find private individuals who were lords ruling over serfs alongside, for example, kings or other state bodies who were also lords presiding over serfs.

Societies where slavery prevailed sometimes displayed struggles between the private and the state slave enterprises. Where feudalism prevailed, there were comparable struggles between the private and the state feudal enterprises. Such struggles sometimes broadened into grand oppositions between private and public, individual and state, citizen versus government, etc. But those struggles and oppositions usually occurred within one, shared class system: slavery or feudalism.

Capitalism has a parallel history. Private enterprises (owned and operated by private individuals and groups holding no position within any state apparatus) have frequently coexisted with public or state enterprises. The latter were owned by the state and operated by state officials. In both the private and public capitalist enterprises, the common basic relationship was between employer and employee. This matched the common relationship (master-slave) shared by private and public slave enterprises and the common relationship (lord-serf) shared by private and public feudal enterprises.

In slavery, feudalism and capitalism, the proportions of private versus state enterprises could and did vary. Public enterprises were sometimes a small and marginal portion of a region’s or nation’s total economy. They might also be altogether absent, or, at the opposite extreme, be the chief or even the only kind of enterprise. Depending on which form prevailed, economies could be described as private or state slavery, private or state feudalism, or private or state capitalism.

What obscured these parallels over the last century and a half was confusion between private versus state capitalism, on the one hand, and capitalism versus socialism on the other. Most people described the dominant opposition as capitalism versus socialism, but their definition of socialism equated it with state capitalism. They viewed capitalism as an economy based on private capitalist enterprises (or “free” enterprises) and markets as organizations for the distribution of enterprises’ resources and products. They viewed socialism as an economy of public enterprises (or “state” enterprises) and central planning as the organization for distributing resources and products. In effect, they conflated socialism with state capitalism.

These confusions of terms and meanings likely arose because nineteenth and twentieth century socialists focused strategically on capturing the state (either by revolution or by parliamentary politics). They planned to use the state as the means to transform capitalism into socialism. State capitalism would serve as a kind of way station where state capitalist enterprises and central planning prevailed (occupied the “commanding heights”) over private capitalist enterprises and markets. Such an economy would then be further transformed into socialism, presumably by the socialists who had captured state power. Socialists were often quite vague about their ultimate goal of socialism, especially when compared to their clear focus on political strategies to win state power and establish state capitalism.

Most socialists gradually stopped viewing the state as merely the means for (and state capitalism as a way-station to) a further transformation. Instead, state capitalism — operated by a state apparatus controlled by people who identified as socialists — came to be viewed as, in itself, the transformation of capitalism into socialism. Converting private to state capitalist enterprises and subordinating markets to central planning came to define the achievement of “socialism.” Two sequential transitions — the first from private to state capitalism and the second from state capitalism to socialism — were conflated into the first one alone.

The last century’s so-called great contest between capitalism and socialism was thus actually a contest between private and state capitalism. The US mostly favored private capitalism. It displayed chiefly private enterprises with significant instances of state capitalist enterprises; it likewise displayed a largely market system of distribution with significant instances of planned distributions. Meanwhile, the USSR was mostly a state capitalism. It displayed chiefly state capitalist enterprises and centrally planned distribution with significant instances of private capitalist enterprises and market distributions. However, most of its advocates and its critics alike described the USSR as “socialist.”

Historically, then, the revolution of 1917 achieved a transition from private Russian capitalism to Soviet state capitalism, while the 1989 implosion achieved precisely the reverse transition. In good dialectical fashion, those oscillations between private and state capitalisms enable us to clarify that socialism lies beyond them both.

The socialist alternative to both private and state forms of capitalism is the end, the supersession, of capitalism as the specific employer-employee organization of production. The replacement of private enterprises by state enterprises and markets by planning are changes that mostly leave in place the employer-employee organization of production, capitalism’s distinguishing mark. The employer-employee relationship in production differentiates capitalism from slavery (where master-slave is the distinguishing relationship). It differentiates capitalism likewise from feudalism (where lord-serf is the distinguishing relationship). Finally, the employer-employee relationship differentiates capitalism — in both its private and state forms — from socialism, in which the dualistic oppositions of master-slave, lord-serf, and employer-employee are all dissolved. In socialism — if we return to its original conception as a basic alternative to capitalism — the workers/employees themselves function as their own collective employer.

Worker coops — what might more precisely be called worker self-directed enterprises — are the core or definition of a socialist organization of production that is a systemic alternative to capitalism. In worker self-directed enterprises, no dichotomy of enterprise participants pits them against one another. No minority (masters, lords or employers) dictates to a majority (slaves, serfs or employees). Enterprises comprise a community of individuals democratically organizing all of their own work activities. The production process itself is thereby socialized. The socialization no longer applies merely to the ownership of means of production and the distribution of resources and products as in classical “socialism.” Worker self-directed enterprises democratize the enterprise, thereby providing more of a basis for the democratization of the economy and society than capitalism (private or state) could ever achieve.

Karl Marx’s analytical focus on exploitation — how surpluses are extracted from producers (slaves, serfs and proletarians) by exploiters (masters, lords and capitalists) — points toward a socialism that negates all forms of exploitation. In contrast, state capitalist enterprises change who the exploiters are and the conditions of that exploitation. State and private capitalisms can be and have been very different in their social consequences, political complexions, etc. Struggles between them have had momentous historical significance. But they did not end worker exploitation; they did not establish a socialist economy that banished exploitation.

For struggles between private and state capitalisms to become means for or steps toward transitions to socialism, their limits must be appreciated. The emerging twenty-first century socialism, focused on a system beyond state capitalism, represents both a return to Marx’s basic insights and a learning from the successes and failures of what the twentieth century called socialism. This will be a stronger, more developed kind of socialism, confronting a capitalism whose internal contradictions, flaws and weaknesses are now more widely appreciated than ever.

Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, where he taught economics from 1973 to 2008. He is currently a visiting professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan. Earlier he taught economics at Yale University (1967-1969) and at the City College of the City University of New York (1969-1973). In 1994, he was a visiting professor of economics at the University of Paris (France), I (Sorbonne). His work is available at rdwolff.com and at democracyatwork.info.

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